Release Date: September 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ermenegildo Zegna NV (ZGN, Financial) reported a 6% year-over-year revenue growth for H1 2024, driven by the Zegna brand and the consolidation of Tom Ford fashion.
- Gross profit rose by 10 percentage points to EUR 637 million, with a margin of 66.4% on revenues, driven by a better channel mix and improved inventory management.
- The company is doubling down on its One Brand strategy, evolving its communication to engage deeper with a targeted audience and enhancing customer experiences.
- Successful events like VILLA Zegna New York and the Fall 2024 Capsule Collection launch indicate strong brand engagement and customer interest.
- Ermenegildo Zegna NV (ZGN) continues to invest in long-term projects, including a new Italian shoe and leather accessory plant in Parma, Italy, to strengthen internal production capabilities.
Negative Points
- The luxury sector is experiencing a deep normalization phase, posing challenges for Ermenegildo Zegna NV (ZGN) and other companies in the industry.
- SG&A expenses increased to EUR 498 million, with a 51.8% incidence of revenue compared to 46% last year, partly due to the consolidation of Tom Ford fashion.
- Thom Browne brand is facing challenges, particularly in China, and recorded a decrease in revenues, impacting overall performance.
- The company reported a EUR 12 million adjusted EBIT negative result for Tom Ford, reflecting investments in talent and organization amid underperforming top-line results.
- Ermenegildo Zegna NV (ZGN) anticipates that 2024 will remain challenging, with uncertainties extending into 2025, particularly in key markets like China.
Q & A Highlights
Q: Can you provide comments on China trading during the summer months and early indications for September?
A: China remains challenging and volatile. July and August did not show an inflection point, with August being softer than July. However, we maintain a positive mid-term outlook and continue to trust our strategy and customer engagement in China.
Q: Do your midterm targets of 10% top-line CAGR and 20% EBIT CAGR still hold?
A: While 2024 has been below initial expectations due to internal and macro reasons, our long-term ambitions remain unchanged. We are committed to delivering our promises, though it may take a bit longer.
Q: Can you quantify the impact of China on your gross margin and the magnitude of the inventory boost?
A: We do not disclose gross margin by country, but despite China's softness, we have been able to improve our gross profit through pricing actions and better inventory management. This indicates the strength of our brand and pricing strategy.
Q: Are there any changes in your plans for store rollouts or refurbishments in China?
A: For 2024, we completed planned projects. For 2025, we are considering consolidating some doors and rebalancing our store sizes. We are also exploring new concepts like Salotto Zegna to enhance our luxury offering.
Q: Can we expect the gross margin improvement to hold in the second half of the year?
A: We expect the gross margin to remain between 66% and 67%, with no major elements likely to move the needle significantly. Marketing expenses will be more balanced in the second half, closer to last year's full-year incidence.
Q: What is the outlook for OpEx cost growth in the second half?
A: We do not foresee major changes in SG&A trajectory. We are selectively reducing CapEx and reconsidering discretionary costs. Marketing expenses will be lower in the second half, aligning closer to last year's full-year incidence.
Q: How is the performance of Thom Browne and Tom Ford in China?
A: Zegna is holding up better than Thom Browne, which faced softness in August. Tom Ford, being a smaller but high-potential brand, recently opened a new store in China World, and we are closely monitoring its development.
Q: Are there any significant factors affecting your SG&A expenses?
A: The increase in SG&A is partly due to Tom Ford's consolidation and brand expansion initiatives. We are managing costs carefully, focusing on necessary investments to support long-term growth.
Q: How are you managing the balance between continuity and innovative products?
A: We are focusing on a mix of continuity and innovative products. The recent success of new product drops confirms the validity of this strategy. We are gearing up our supply chain to support this approach across all brands.
Q: What are your plans for marketing and promotional activities in the second half?
A: Marketing expenses will be more balanced in the second half, with a full-year incidence closer to last year's 6%. We continue to focus on strategic events and targeted audience engagement to drive brand growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
